Top 10 Credit Card Mistakes

Some people would even ask what a card member agreement is? Do you know? A cardmember agreement is usually a document printed in smaller fonts and shipped to the member with the credit card itself. It is formatted in such a way that most people think it is a useless piece of information and trash it before they even sign their new and shiny credit card. However, not reading this fine print or not knowing the term and conditions of your credit card will cost you hundreds of dollars in long run. This document has detail description of every single “sin” that your credit card issuer can commit so pay close attention, read it cover to cover and save a copy for your records. If you read it - you’ll understand everything from your interest rate and fees to how to earn rewards and how long of a grace period you have.
A credit card issuer is legally obligated to send you another copy every time they make changes to your card agreement. So always keep a close eye on your mailbox for a mailing that may have an updated cardmember agreement because any ignorance here can cost you lots of money.

Most people do know the interest rate on their cards but only at certain points in their lives. This is usually the time when they receive an introductory rate of 0% for 12 months. What is important here is not the introductory rate, but the date it expires and the regular rate that you’ll be charged thereafter. Credit card companies list your interest rate on monthly statements but they don’t tell you when your rate expires because they play a “trick” and print the ‘offer name’ that gave you the introductory rate. They obviously don’t want you to know the date when your rate jumps because you may transfer the balances or pay them off. Knowing interest rate is important for even those people who don’t carry balances because emergencies happen and if you don’t have an emergency fund, you should at least know the credit card that has the lowest interest rate.

If you want to be in debt forever, make minimum monthly payments on your credit cards. These payment are designed to give banks an enormous payoff, while keeping you shackled to debt for decades. Remember, interest on credit card balance is compounded on a monthly basis and minimum payment is only designed to cover monthly interest not a single penny from the principal. Credit card minimum payments may seem convenient on the surface, but only making the minimum payment each month can be quite costly – and, it can take you several years to finally get your credit card paid off. Here is an example Total Credit card balance : $10,000 Interest Rate: 24% = 2% monthly Minimum monthly payment: $300 So if you have a $10,000.00 balance on a credit card with a 24.000% APR. If your minimum payment is $300.00 and that is all you pay each month, it will take you 27 year(s) and 1 month(s) to finally get that card paid off (assuming you don’t add anymore debt to the balance). You will have also paid $12,466.09 in interest alone.

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This one is a little tricky one but here is how it gets you in trouble. Let’s say you have a credit card with $10,000 outstanding balances and 10% interest rate. You obviously want to save so you applied for a new credit card that has a 0% introductory offer for 12 months. Now you transfer all of $10,000 from your old credit card to the new one. So far so good.
What you didn’t realize is that new credit card charges 3% balance transfer fee so balance on your new credit card is not $10,000 but $10,000 plus 3%($600) or $10,600. Not a problem since you already knew there would be a balance transfer fee. Do you see a problem yet? If you do, you have done your homework and know the balance transfer game. If you don’t see any problems, here is some explanation for you. Putting a balance of $10,600 on a credit card with credit limit of $10,000 have sent you over your credit limit by $600. This would trigger a over the limit fee that varies from $50 to as high as $120. So right away you owe them another $50 and for every single month your balance stay over $10,000, you would owe them additional $50 in over the limit fees. End result - hundreds of dollars in finance charges that you never saw coming.

That doesn’t sound a mistake or does it? Well, actually this is what credit card company wanted you to do. It is not only a big mistake, it also tilts the balance in credit card issuer favor. Now they can charge you 15% or even 30% interest they hoped for. They might even charge you over the limit fees, if you’re maxed out. Further, now you have to worry about making that monthly payment on time every time. If you miss a payment, there is a late fee and default finance charge that could be absurdly as high as 40%. Sometimes the problem comes with just the bad habit of spending too much money as people tend to overspend is in the area of food, clothes and transportation. Bottom line – if you already have big spending plans when you’re getting ready to apply for a for a credit card, you might reconsider getting credit card because of the impending trouble.

Have you heard of reward cards? They are more popular than regular card now days because apparently people are looking to get rewarded for their spending. If you’re looking to get a reward card, make sure you understand what you’re getting. For example, there is no point getting a reward card that only gets you point only when you buy gasoline and not other time. You want a card that offers reward for every single dollar you spend and regardless what you spend it on. So make sure you clearly understand your reward schedule and conditions. Also make sure you are aware of any expiration clause in your reward program. What is the point of earning all reward miles or point if they expires at the end of the year before you can do anything with them.

Cash advance checks are the reason why most people got in credit card debt. Remember, cash advance checks offer you a freedom to do whatever you want to do with the money. You can deposit it in your bank account and it is just like extra cash waiting for you. However, very few people realize that there are so many terms and conditions that apply to these checks. First of all, they are treated as cash advances and thus you pay the APR that applies to cash advances as per your card member agreement. This APR is as much as twice the purchase APR in most cases. There is also a transaction fee that could cost of as much as 5% on the balance up front and there is a minimum amount( usually $90) that applies. For example, if you use a cash advance check for $200 with a cash advance fee of 3%, technically you should only pay $6 as cash advance fee. However, in reality this amount will end up at least $30 or $40 due to that minimum amount clause that we just pointed out. So if you paid $30 up front on a $200 cash advance, that’s 15% interest up front and you haven’t even gotten your money yet. Believe it or not, in certain cases, cash advance checks are worst than your local payday loan place.

Sometimes people try to get 10-15 card so that they can move around their balances from one card to another. First of all this trick doesn’t work because you will end up paying balance transfer fees even with low introductory rates. You will also have to keep a log of the introductory rate expiration dates on various card. All this extra work will be too much hassle and you won’t gain anything out of it. Of top of that, your credit score will go down since you’re seeking new credit and as a more risky customer to most lender. This drop in your credit score alone is enough to offset any saving that you may have on your balance transfers.

If you don’t have balances and don’t feel the need to keep 3-5 credit cards, it is natural that you would like to cancel them. However, this could hurt your credit score in two ways. First of all your debt to credit ratio may go up if you still have balances on the remaining card(s). this jump is debt to credit will cause your credit score to drop and thus making future loans more expensive to get. You may also reduce the type of credit of your credit report and that would cause drop in your score. Lenders like to see a mix of credit such as revolving credit, unsecured credit and secured credit on your report. Closing all credit cards could negatively impact your credit report and sc ore since you would lose reference to any unsecured credit on your report.

Sometimes people think that by paying couple of days late wouldn’t do any harm. That’s a big misconception. Remember, your grace period start from the date your billing cycle ends not from the date you receive your bill. For example, if your billing cycle ends on 5th and you receive your bill on 12th, your grace period of 25 days would end on 30th (starting from 5th), so you have only 18 days to pay. Also, if you’re going to mail your payment, you have even less time since you must allow a few days for mail. If you’re payment is late even by a day, your credit card company will gladly apply a late fee to your balances and might even informed credit agencies if your payment is late by a week or so.